All About Graded Surveillance Measure (GSM)

In the fast-paced and sometimes unpredictable world of the stock market, regulatory tools are important to maintaining investor safety and market integrity. Stock exchanges and the Securities and Exchange Board of India (SEBI) actively monitor to stabilise equity markets. 

They introduced the Graded Surveillance Measures (GSM) to alert investors. This system helps regulate stocks that show unusual fluctuations in price movements. It aims to alert and protect investors from speculative or potentially risky stocks. 

As an investor, knowing its stages, how it works, its impact on trading, and what to do when dealing with GSM-listed stocks will save you from scams. 

SEBI and stock exchanges use surveillance measures to monitor and control the trading of securities. These actions protect investors, prevent market manipulation, and uphold market integrity. When security comes under surveillance, traders receive alerts about the restrictions before placing an order.

The following are the types of surveillance measures:

• Additional Surveillance Measure (ASM): SEBI uses ASM to manage risks related to price volatility or possible manipulation

• Graded Surveillance Measure (GSM): GSM places stage-wise restrictions on highly speculative stocks

• Enhanced Surveillance Measure (ESM): ESM targets securities that show irregular or suspicious trading patterns

The Graded Surveillance Measure (GSM) system is implemented by stock exchanges and SEBI to monitor and control excessive price volatility in certain stocks, especially those prone to speculation. Under GSM, stocks are placed into different stages or “grades” based on predefined criteria such as abnormal price movement, low market capitalization, and poor fundamentals. Depending on the grade, trading restrictions like higher margin requirements, trade-to-trade settlement, or even suspension of trading may be imposed. This system aims to protect investors by promoting transparency and reducing manipulation in the stock market.

GSM is one of the specific surveillance tools that exchanges like the BSE and NSE implement. It focuses on securities that may be prone to price manipulation or have weak financial fundamentals.

The key features of GSM include:

• Application to companies with low market capitalisation or questionable financials

• Use of a multi-stage framework, with each stage introducing strong controls

• Regular reviews and movement of stocks in and out of GSM based on set parameters
  

The intention of GSM is not to stigmatise a stock or company. Instead, it is a cautionary mechanism for investors and a tool for preserving orderly market operations.

Key Factors Affecting GSM are:

• Financial health

• Corporate governance and compliance

• Market behaviour and trading irregularities

• Track record and transparency

The tool consists of several stages, with each level introducing additional trading restrictions depending on the stock's behaviour and the severity of the concerns:

These stages are not necessarily sequential for all stocks. A stock may enter at any stage based on assessment.

When a stock is under GSM, its trading undergoes certain restrictions. These can vary from minor inconveniences to major limitations. For example:

• Trade-for-Trade Settlement: You must settle stocks by delivery, and you can not engage in intraday trading

• 100% Margin Requirement: You must pay the full trade amount upfront

• Reduced Trading Frequency: In some stages, exchanges may allow trading only during weekly or monthly windows

• No Speculative Trading: Exchanges treat all orders as delivery-based to discourage short-term speculation
  

The intention of these actions is to curb price manipulation and speculative trading while allowing genuine investors to continue transactions.

To better understand how GSM restrictions work, consider the following table summarising typical actions at each level:

These actions ensure your safety while giving fair notice about potential risks. Following are some restrictions and implications that you should be aware of:

• Companies appoint more independent directors to strengthen governance

• Firms set up strict internal controls and reporting systems

• Companies assign compliance officers to track legal adherence

• Repeated GSM actions increase the risk of delisting

• Investors reduce trust in GSM-listed companies

If you're wondering how to verify if a particular stock is under GSM, you can follow these steps:

• Check NSE Website: Visit https://www.nseindia.com and go to the Surveillance section to view the updated GSM list

• Visit BSE Website: On https://www.bseindia.com, use the search bar or go to the Notices section to find GSM-related announcements.

• Broker Platforms: Many trading platforms flag GSM stocks and show applicable restrictions.
  

Always rely on official sources to verify GSM status and understand the applicable stage before trading.

GSM is important because it directly impacts your strategy and decision-making:

• Prevents Speculative Losses: By curbing sudden speculative movement, GSM protects retail investors

• Promotes Due Diligence: You will have to study fundamentals rather than price charts alone

• Influences Liquidity: Trading limitations may reduce ease of buying/selling

• Affects Short-Term Traders: Intraday trading becomes impossible, reducing profit opportunities for such participants
  

Understanding GSM can help long-term investors navigate risks wisely.

While both GSM and ASM are surveillance mechanisms, they differ in application and scope. Here is a comparison:

Both NSE and BSE regularly update their GSM and ASM lists:

• Update Frequency: Usually weekly, but sometimes more frequent depending on market conditions

• Communication Channels: Exchange circulars, notices, and surveillance dashboards

• Review Mechanism: Periodic review to include or remove stocks based on changing criteria
  

Always consult recent circulars before taking any investment-related decision.

Graded Surveillance Measure (GSM) is a critical tool that stock exchanges use to protect investors and maintain market stability. It imposes trading restrictions on flagged stocks, and it does not imply anything about a company's long-term prospects. 

GSM serves as an alert mechanism for heightened investor caution. With a clear framework and stages of GSM, you can make informed choices, avoid speculation, and stay aligned with regulatory expectations.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.